Renault gearing up for reversal of fortunes

French automaker Renault is aiming to erase its negative valuation through the creation of specialized businesses Ampere and Horse, and a revamped alliance with Nissan and Mitsubishi.

Although Renault sold more than two million vehicles last year and posted record profits for the first half of 2023, investors effectively value the company's core business at less than zero. The company's market capitalization currently sits around 10.6 billion euros ($11.43 billion), much lower than European rivals Sellantis (worth about 64 billion euros) and Volkswagen (57 billion euros), based on LSEG data.

Renault's 12-month forward price-earnings ratio — a key metric for valuing shares — is 2.8, the lowest among European automakers. Excluding the value of Nissan shares held by Renault (6.6 billion euros), the net cash position of its automotive business (2.2 billion euros as of June 30) and financial services of its Mobilize unit (6.1 billion euros on June 30), the remaining "core" value stands at minus 4.3 billion euros for Renault's automotive assets, based on Reuters' calculations and data from Renault.

"It is not up to me decide what the core value of the company is," Renault CEO Luca de Meo said at Wednesday's media conference to announce the revamped alliance with Nissan and Mitsubishi. "My job is to actually make sure we do the right things so that the investors and the market understand there is a lot of substance in Renault."

De Meo hopes the listing of Ampere, a "pure player" in electric vehicles and software earmarked for an IPO next spring if market conditions permit, will help give that substance. In September, the CEO mentioned a possible valuation of up to 10 billion euros, although some analysts valued Ampere at 3-4 billion euros.

Value might also be found in Renault's legacy combustion engine business Horse, co-owned with China's Geely, and awaiting an investment from Saudi Aramco. Sources told Reuters the Saudi oil group plans to take a stake of around 20 percent in the joint venture.

"We hope it will gradually become more difficult to say 'Horse is worth this much, Ampere is worth this much … everything else is worth minus,'" Renault CFO Thierry Pieton told Reuters last month.

Experts say the French automaker's negative valuation can be attributed to conglomerate syndrome, which determines the whole is worth less than the sum of its parts. To simplify their reading of the situation, Renault's investors have repeatedly advocated either a merger with Nissan, or a separation of the French and Japanese partners.

This year Renault and Nissan unveiled a major restructuring of their alliance, which was founded more than 20 years ago, with a simpler capital structure, the end of common purchasing and more pragmatic ambitions based on individual projects and regions.

"For sure, I think this movement on the alliance could help," de Meo said. "But we did not do it for the core valuation, we did it to find a setup that would enable us to be more effective, fast and concrete."

In a client note in early December, Bernstein analysts wrote that Renault's valuation remained surprisingly low despite a 16 percent year-to-date rise in its stock price.

REUTERS